Samsung has changed itself several times to win trust? How big is its ambition?

Industry insiders said that when Samsung told engineers in its dominant memory chip team they were being moved to the processor chip division, they often asked what they had done wrong.

The processor is the "brain" of any computer, making decisions and storing and retrieving data, and Samsung makes its own processors for all of its devices, including smartphones, tablets, and even laptops.

But in Samsung's giant chip division, which had sales of 8.8 billion ringgit ($73.3 billion) last year, the processor unit has become the second-largest area after making memory chips, and Samsung's storage products, which store data, account for 84% of those sales.

Demand for memory chips has remained high over the past three years, driven in part by the boom in smartphones and in part by the need to build more and more data centers to accommodate the vast amounts of data generated by individuals and businesses.

But in the first quarter of this year, Samsung's operating profit slumped 60 percent as a global glut of memory chips led to falling prices.

Now the South Korean company wants to increase business revenue from its processor unit, according to an executive at the company's Giheung campus south of Seoul, and said it would invest 13.3 trillion won over the next decade to become the world's largest and most advanced producer of processor chips.

Whoever dominates the industry will be key to supporting new technologies such as artificial intelligence, 5G and self-driving cars. They are also expected to be the winners in the foundry market, which is expected to have annual output of nearly $70 billion this year, according to TrendForce. IC Insights expects revenue growth in this area to soon exceed that of other chip markets.

Samsung's success or failure will also have important implications for the technology industry, including affecting China's dream of semiconductor self-sufficiency, potentially reducing Taiwan's long-term advantage in making processor chips and expanding South Korea's position in the electronics supply chain.

Samsung lags behind TSMC

Samsung only accounts for 8% of the processor chip foundry market, and they need to significantly increase their share to challenge Taiwan's TSMC, which has controlled more than half of the market in the past few years. In the process, Samsung may also need to fend off challengers from mainland China.

While Samsung and TSMC lead in chip size and power consumption, TSMC has dominated the market since its founder Morris Chang hatched the independent foundry model in the late 1980s. The Hsinchu-based group is also a favorite among technology analysts, having established solid partnerships with a number of chip design companies including Apple and Huawei.

For Samsung to succeed in this space, it needs to focus on two things: money and trust.

Take TSMC as an example. In order to continuously explore and create world-leading chip technology, they reinvest 8% of their annual revenue into research and development, and their investment in 2018 was US$2.9 billion.

Samsung announced in April that it was investing $63.5 billion of the $115.7 billion it invested in R&D to stay in the race to produce cutting-edge chips, with the rest going into manufacturing facilities.

Still, analysts point out that Samsung's chipmaking division's annual capital expenditure is estimated to reach about $5 billion to $6 billion over the next decade, which is still a long way from TSMC's $10 billion to $12 billion in the next few years.

"Samsung will have to invest a lot of money in R&D to become the 'number two' foundry," said Randy Abrams, an analyst at Credit Suisse in Taipei.

Conflict of Interest

As Samsung sees it, the cash committed to 2030 ensures sustainable growth, and executives have not ruled out further spending increases. Compare that to TSMC, which also won a dominant position by sharply increasing spending on chip technology and capacity before the smartphone boom after winning Apple as a core customer.

And Samsung is looking for similar opportunities, hoping that new applications around 5G, AI or the Internet of Things might give it an opening. “If the timing is right, we could do something similar to what TSMC is doing,” the executive said.

But Samsung is also a major player in smartphones and devices, which means some potential customers are wary of a conflict of interest.

Many of the companies Samsung wants to work with for chip manufacturing are direct competitors. Such concerns remain even though the company spun off its chip manufacturing division from other divisions in 2017.

“Apple and Huawei both have a sizable chip share that’s growing over time, and those are two big customers that Samsung can’t get,” Mr. Abrams said.

Will companies trust Samsung?

Samsung executives stressed their determination to address the trust issue, pointing to the company’s efforts over the past two years, which have included new legal compliance protections and firewalls to safeguard customers’ intellectual property.

But industry watchers are increasingly questioning whether Samsung has allayed concerns. “It takes years to build trust. This is more than just a paper,” said Mark Li, an analyst at Bernstein in Hong Kong.

Analysts say TSMC's position as a purely independent chipmaker is attractive to some of Samsung's main rivals.

Elizabeth Sun, director of corporate communications at TSMC, said they are very aware of the competition from Samsung. But TSMC is optimistic about itself and said that Korean companies will never become contract chip manufacturers like TSMC.

“We will never compete with our customers,” Ms. Sun said. “What we do is work with our customers. . . But Samsung competes with everyone. But that doesn’t mean they will never get any foundry customers. . . But will they rely on Samsung the same way they rely on TSMC?”

Samsung has reinvented itself several times

Japan's new export controls on materials used in semiconductor production could undermine Samsung's use of EUV lithography machines , which are essential for making the most advanced chips, casting a shadow on Samsung's future.

But some analysts point to Samsung's history of several cycles of successful reinvention.

In 1983, the South Korean company sampled the first dynamic random-access memory chip; 10 years later, it beat Japan's Toshiba Corp. to become the world's largest memory chip maker, industry watcher Don Dingee wrote in his history of the chip industry.

Then in 1994 the company shipped its first NAND flash memory parts, and by the end of 2002 it supplied more than half the market. Mobile phones took longer: from "reverse-engineered Toshiba car phones" in the early 1980s to shipping more smartphones than Apple in 2011.

“If you ask me can Samsung surpass TSMC in five years? My answer is simply ‘no,’ ” said Daniel Kim, a chip analyst at Macquarie in Seoul. “But over the past 20 to 30 years, Samsung has reinvented itself many times and very successfully. Microsoft did it once, Nokia did it once. But has any other [tech] company done it three or four times?”